Insights 
VT 
On Monday, the People’s Bank of China (PBOC) set the USD/CNY reference rate at 7.0973, slightly higher than the previous rate of 7.0949. Meanwhile, the figure is lower than the 7.1318 estimated by Reuters.
The PBOC focuses on maintaining price stability, promoting economic growth, and implementing financial reforms. It is owned by the People’s Republic of China and is influenced by the Chinese Communist Party. Currently, Pan Gongsheng oversees the institution.
PBOC Policy Tools
The PBOC uses a range of policy tools to meet its objectives, such as the seven-day Reverse Repo Rate, Medium-term Lending Facility, and the Reserve Requirement Ratio. The Loan Prime Rate, however, is the benchmark interest rate influencing loan and mortgage rates. Changes to it can also alter the exchange rate of the Renminbi.
In China, private banks are allowed, although they form a small portion of the financial system. Leading private banks include digital lenders WeBank and MYbank, supported by Tencent and Ant Group, respectively. The introduction of private banks was permitted in 2014, which marked a shift in the state-dominated sector.
The People’s Bank of China has allowed the yuan to weaken slightly against the dollar with its latest fix. However, by setting the reference rate significantly stronger than market forecasts, the central bank is signaling it will not allow for a rapid depreciation. This suggests a strategy of controlled, gradual currency easing to support the economy.
We see this move as a response to recent economic data, with Q3 2025 GDP growth missing consensus estimates at 4.2%. Furthermore, export figures for September showed a contraction for the second consecutive month, putting pressure on authorities to enhance trade competitiveness. A managed depreciation of the yuan is one of the primary tools to address these headwinds.
Implications For Traders
For derivative traders, this policy stance implies that while the yuan’s direction may be downward, its path will be tightly controlled. This should keep realized volatility for USD/CNY options lower than what underlying economic pressures might suggest. Selling short-dated call options on USD/CNY could be a viable strategy to capitalize on this dampened volatility.
This approach is consistent with the playbook we observed throughout much of 2023 and 2024 when the PBOC consistently pushed back against speculative pressure. Back then, the central bank used strong daily fixings and state bank actions in the swap markets to slow the yuan’s slide past the 7.30 level. We anticipate similar interventions if the currency approaches psychologically important levels in the coming weeks.
The significant interest rate differential, with US rates expected to remain elevated, continues to favor long USD/CNY positions. The PBOC’s actions to smooth the yuan’s decline actually make this carry trade more attractive by reducing the risk of a sharp, sudden currency correction. Traders may look to use forward contracts to lock in this favorable yield differential.
